Legal precautions, such as creating an irrevocable power of attorney, are frequently required when dealing with life's uncertainties. A power of attorney is a binding legal instrument that entrusts a chosen agent with substantial decision-making authority on behalf of the principal. According to the American Bar Association, while powers of attorney are widely used, irrevocable ones are less prevalent due to their permanent nature.
This type of power of attorney empowers the agent to handle financial affairs, healthcare decisions, and even the principal's living arrangements. Given the gravity of such delegation, it's crucial for individuals to understand the implications: once granted, an irrevocable power of attorney cannot be withdrawn, making it a critical tool for long-term planning rather than a flexible solution for changing circumstances.
With most powers of attorney, the principal signs over control while he is of sound mind. He chooses to allow another person to make decisions for him, but retains the right to take back control of his affairs or name a different person his agent in a new power of attorney. He might do this, for example, if the agent he chose made poor decisions or if the agent's help was no longer necessary. He would not have this automatic right with an irrevocable power of attorney, however.
Sometimes an irrevocable power of attorney is not expected to continue indefinitely and includes a clause that ends the contract on a specific date. This means that if a person wants to create an irrevocable power of attorney giving another party financial control over his affairs, he may add a clause that ends the agreement after a set amount of time. Sometimes such clauses end the power of attorney situation once a particular condition has been met rather than on a specific date. In either case, these clauses are often referred to as "sunset provisions."
Since many people would rather retain the right to terminate a power of attorney if need be, many people reserve irrevocable powers of attorney for dealing with specific financial matters. For example, a person may want to give a broker or agent the power to control his assets in exchange for his exclusive service. This power may be granted as part of an overall contract and cannot be terminated by the principal unless the agent agrees to it. A person may also create an irrevocable power of attorney that stays in effect until the agent has sold or transferred the party's assets. At that point, a sunset provision may allow for the termination of the agreement.